Leader of Insurance Scam Pleads Guilty

The mastermind of what prosecutors call the largest auto insurance scam ever uncovered in Orange County pleaded guilty to conspiracy and drug charges Monday and was sentenced to five years in state prison.

Prosecutors charged that Norman Sidney Gerstein, 38, the owner of a Fullerton body shop, recruited dozens of people to stage phony car accidents or to collect damages for accidents that never happened. Over four years, they bilked at least eight insurance companies of more than $1.2 million, prosecutors said.

Gerstein and 30 people accused of being his accomplices were indicted in February on charges of conspiracy to commit grand theft. All but seven have pleaded guilty, and at least four will serve state prison terms, Orange County Deputy Dist. Atty. Daniel B. McNerney said.

McNerney called Monday for stiffer sentences for insurance fraud, saying the current penalties are “no deterrent at all.” Insurance scams are difficult to detect and even more difficult to prosecute, McNerney said, and under California law, the maximum penalty--even if millions are stolen--is 10 years in prison.

“A guy could literally steal the whole world, and the most he could be sentenced to is 10 years,” McNerney said. “In reality, the worst possible white-collar criminal is only looking at doing five years.”

Prosecutors often prefer to try such cases in federal court because federal crimes carry far tougher penalties. Investigators in this case found no evidence that Gerstein had violated federal law, McNerney said.

“Right now, in the federal system, he’d be looking at 50 years, instead of five,” McNerney said.

Fraudulent or inflated insurance claims cost California insurance companies up to $1 billion each year, according to industry estimates. Insurance companies say that $1 out of every $5 consumers pay for auto insurance goes for fraudulent claims, and they cite fraud as a major cause of skyrocketing premiums.

Investigators have said Gerstein and his accomplices submitted and were paid for more than 100 fake insurance claims; Farmer’s Insurance alone lost more than $100,000 to the scam.

The California Highway Patrol stumbled onto the scam when an officer stopped one of the defendants for a traffic violation and discovered that the driver had several insurance policies under different names for the same car. It took the CHP 2 1/2 years to investigate the case.

On Monday, Gerstein calmly pleaded guilty before Municipal Judge Gary P. Ryan to nine counts of conspiracy to commit grand theft and one count of possession of cocaine for sale.

The cocaine was found during a raid on Gerstein’s home in Colton. McNerney said that Gerstein paid some of his accomplices between $500 and several thousand dollars for submitting phony claims but that he supplied others with cocaine in exchange for their parts in the scam.

Gerstein would have faced 10 years in prison had he gone to trial and been convicted of all the charges; he was given the five-year sentence in exchange for the guilty plea, McNerney said. Gerstein’s attorney, Frank Ospino, said he expects his client to actually serve between 3 and 3 1/2 years in prison.

Gerstein’s wife, Jeanne Ann Gerstein, 37, who also was indicted, was not in the courtroom Monday. She and five other defendants have pleaded not guilty and are awaiting preliminary hearings. A seventh defendant is still at large and believed to be living in Georgia, McNerney said.

Gerstein’s two “lieutenants,” however, have pleaded guilty and have already begun serving state prison terms. Gregory Ian Hodges, 37, of Lakeland was sentenced to 3 years and Kenneth Glenn Hoffman, 33, of San Diego to 3 1/2 years in prison, McNerney said.

Sentences for the other defendants who have entered guilty pleas have ranged from restitution of amounts of about $5,000 to $7,000 to as much as 32 months in jail, he said. So far, defendants have agreed to repay $130,000--about a 10th of the money stolen.